At the end of a fix? Don’t revert – remortgage!

Category:
Mortgages
14/12/2016

MONEYFACTS ARCHIVE

This article was correct at the time of publication. It is now over 6 months
old so the content may be out of date.

It's a great time to be a mortgage-seeker at the moment. Rates are at record lows, fees are falling, and the cost of a mortgage is genuinely reducing as providers all vie to attract your business. So why not take advantage? If you're nearing the end of a fixed rate mortgage deal, don't stand idly by and revert to your lender's standard variable rate – consider remortgaging instead!

Lower rates = more remortgaging

Moneyfacts' figures have revealed that the average two-year fixed mortgage rate fell by 0.09% this month, down from 3.06% to a new record low of 2.97%. The majority of loan-to-value (LTV) tiers posted reductions, too, most notably the 85% LTV tier, which saw a drop of 0.18% to stand at 2.88%.

This shows that competition is still strong across the sector, and arguably it's this that's fuelling the rise in remortgage figures: data from the CML shows that there was a noticeable uptick in remortgaging activity in January, with the number of remortgage advances totalling 25,600, up from 22,300 in December 2014. This follows several months of falling activity, and marks the first increase since September.

Lower mortgage rates will have been a key driver behind this – why wouldn't you want to reconsider your position if you could find a far cheaper rate? It just makes sense! Looking closer at the figures highlights this in even sharper detail, and shows just how much you could save.

How much could you save?

It isn't enough to just look at current rates. We also need to consider the rate a typical borrower would have signed up for two years ago, as well as lenders' standard variable rates, and the gap between the two is growing.

Let's say you're coming to the end of a two-year fixed rate deal. Moneyfacts' figures show that the average two-year fixed rate in April 2013 was 3.80%, while the average SVR – the rate at which you'd generally revert to – currently stands at 4.85%. This is a significant difference, as it means you'd see a rate increase of 1.05% should you decide to revert. Alternatively, if you decide to remortgage to an average rate of 2.97%, you could actually see a reduction of 0.83%, instead of an increase.

So doesn't it make sense to remortgage? It could make a huge amount of difference – if you had a mortgage balance of £150,000, for example, and were on a rate of 3.80%, you'd be paying interest of £475 per month (£5,700 per year). If you then reverted to an average SVR, those payments would increase substantially to £606.25 per month (£7,275 per year), whereas if you remortgaged to the current average fixed rate of 2.97%, your monthly interest payments would amount to just £371.25 (£4,455 per year).

This means you'll save £1,245 per year by remortgaging to a new fixed rate, and would be paying around £2,820 less per year than if you reverted to your lender's SVR. What more reason do you need?!

Get in on the action!

If you're not too sure when your fixed rate deal comes to an end, it's time to check. You wouldn't want the deal to finish and be switched to a higher variable rate unnecessarily, so be proactive – check your documentation, and start your search for a remortgage deal so you're ready to switch as soon as you can.

You may not have to pay extortionate fees, either. Once upon a time, borrowers would have been tempted to revert for the simple reason that the fees would have made any savings negligible, but now, remortgage costs won't be such an issue – Moneyfacts' figures show that the average fixed fee continues to reduce, now standing at £674 (down from £682 last month), as providers are genuinely cutting the cost of borrowing in their attempts to compete for your business. It'll be a great time to take advantage, so check out the top remortgage deals to see how much you could save.